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Foundations of Strategy PSU MGMT #511

Dave Gartendaveoutside@alum.mit.edu

Week # 1

What is Strategy?

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Dave Garten – Background Highlights

Current Faculty, PSU/OEMBA – Strategy, M&A, Negotiation, Biz Projects Consulting: management, strategy, alliances, M&A Board(s): Organically Grown Company, SeQuential Biofuels,

Bridlemile Soccer, Forest Park Conservancy

CEO, SeQuential Biofuels, Inc.Intel – 15 year career General Manager Director of Business Development. >200+ alliances Marketing and product management

Engineer early-on – designed fuel injectionEducation: MBA M.I.T. 1987; BS/MS Engineering

Strategy EvolutionAncient Greece – “Startegos” –military commanderIndustrial Revolution railroads & mass markets capital , credit, large scale investment to enable economies of scale/scope high level thinking

Sloan (GM) – devised a successful strategy based on S & W of Ford segmentation and differentiation

Learning curve. Labor costs reduced at a constant rate as cumulative production doubled

B-school focused on matching S/W with O/T SWOT.Rise of strategy consultants in the 60s and 70s.

BCG BCG Growth Share matrix McKinsey SBUs

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Source: Derived from Pankai Ghemawat, Strategy and the Business Landscape

TerminologyBusiness ModelVisionMissionStrategyObjectivesTacticsEmergent Strategy

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What is a business model?

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A business model describes the rationale of how an organization creates, delivers, and captures value. The process of business model design is part of business strategy.

Customer Value Proposition

Resources

Profit Formula

Key Processes

Revenue modelCost structureMargin modelResource velocity

Wealth, access, skills or time.

Source: Derived from Johnson, Christensen, Kagermann, Reinventing Your Business Model

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Vision & Mission & Strategy“Every business, if it is to succeed,

must have a sense of direction and mission, so no matter who you are and what you are doing, you know how you fit in and that what you are doing is important.”

-- Lou Gerstner, 2002

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Vision & Mission & Strategy

Vision:

Mission:

Strategy:

Derived from Strategic Mgt by Arnoldo Hax, Strategic Mgt by Fred R. David.

X

“what do we want to become?”

“what is our business?”

“means to accomplishes objectives”

Strategy Development

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Strategy =

an objective

+ “the how”

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Strategy Development

Tangible objectives (targets) Financial Objective examples:

Achieve ROIC of 15%, AAA bond rating

Strategic Objective examples:Achieve market share of 20%, lowest unit cost

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Strategy DevelopmentHow to achieve objectives choice Using/developing a competency

Hopefully -> exploiting competitive advantage Responding to changing environment

Good Strategy 50% experience 50% data

Strategy is ½ planned -- ½ Unplanned

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What is Strategy?1. Productivity Frontier2. Unique and valuable position3. Tradeoffs and decisions 4. Glue that puts pieces together5. Greatest threat from within…

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Levels of StrategyCorporate Strategy Overall vision, mission Kinds of business, portfolio management

Business Strategy Business vision, mission What product and/or service to offer How to manufacture, how to get to market, etc.

Functional Strategy Functional vision & mission Focused domain

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What is Good Strategy?How do you know a good strategy when you see it? Will have many of these qualities:

X

Emergent Strategy

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Strategy Development

External Analysis“Basis of Competition”

Internal Analysis“What we have”

Mission Strategy R & D SupplyMftg

SalesMktg

Coordinated action (tactics) “Translation of Strategies”

Strategic Management:•Exploit & create new and different opportunities for tomorrow•Setting up l/t success to support mission, strategies & tactics

Strategic Management:•Exploit & create new and different opportunities for tomorrow•Setting up l/t success to support mission, strategies & tactics

Frequency

Case Discussion1. What is Netflix’s “Customer Value

Proposition?” 2. What is Netflix’s “Profit Formula?”3. What are Netflix’s Key Resources &

processes?4. What is Netflix’s competitive advantage

versus Blockbuster? How are these related to Netflix’s unique activities? What might Porter or Barney say about Netflix’s competitive advantage?

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Re-occurring Themes in Strategy

Change is a constantArt – not a scienceGray - not white & blackCombinations of strategies– rarely a pure single strategy determines winnersSuccessful strategies (businesses) learn, adapt and take advantage of change

Critical Thinking Model

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Strategic Thinking & Leadership

What is the relationship between strategic thinking & leadership?What is the relationship between strategic thinking & leadership?X

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Strategic Leadership (BA521)

Strategic Thinking and Visioning: Effective managers act with the future in mind. They plan for and make decisions within the framework of the enterprise’s strategic intent. They know and understand the factors influencing strategy (e.g., core competence, customers, competition, and the organization’s current strengths and limitations). They consider future impact when weighing decisions. Effective managers are imaginative. They are able to create a vision of a preferred future for their team. They communicate it clearly and enthusiastically in such a way that others are attracted to it. They are able to bring a vision to life for team members.

Risk-Taking: Effective managers have a history of, and propensity for, taking calculated chances to achieve goals. They find a balance between analysis and action. When they fail, they accept it, learn from it, and move on to the next challenge.

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Strategy – reality checkWhat are Gerstner’s major points re: strategy?

X